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Microsoft’s Guanxi

The importance of Guanxi for companies seeking to win business in China varies depending on the sector. Trying to secure shelf space for beer? Guanxi is pretty important. Trying to win a $10MM semiconductor deal at Huawei? Not as important.

I found that merit counts more than Guanxi when selling high tech to big companies in China. Every time we thought we could win based on Guanxi, we lost.

Microsoft, and Bill Gates, are an exception. Hu Jintao visited the U.S. in April and had dinner at two places – The White House and Bill Gates House. While there, he uttered some famous words:

“Bill Gates is a friend of China, and I am a friend of Microsoft,”

Nine out of ten copies of Windows in China are pirated. That makes the following statistic, courtesy of Reuters, all the more important.

Some 48 percent of PCs shipped in China in the three months through March came with legal copies of Windows already installed, compared with 25 percent in the fourth quarter of 2005, according to figures supplied to Reuters on Thursday by data tracking firm International Data Corp. (IDC).

Legitimizing software in China represents a huge untapped revenue source for Microsoft. And they’ve got the Guanxi to make it happen.

From Reuters:

Observers believe the Chinese vendors signed their deals with Microsoft in April under pressure from Beijing, which is trying to show it is making serious efforts to stamp out piracy — a major complaint from many Western governments.

In late March, the Chinese government went so far as to issue a decree requiring PC makers to install a licensed operating system on each machine before it left the factory.

Hat Tip – China Economic Review


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  1. “I found that merit counts more than Guanxi”

    Merit? Is that code for money?
    If the decision is taken by 1 person or 1 group of people and they are a ‘close’ group, its more important how much palm grease you use than how good your product is.

    As an example, look at Kai-Fu Lee’s pay package (Google employee hired from Microsoft).

    Microsoft paid him $4 million or so, Google $10 million, US companies are not permitted to bribe, so they hire intermiediaries. That’s why I think Lees package is so high, I suspect he’s a middleman to Chinese officials and half of that money is bribe money.

    Posted by Cookie Fortune | June 2, 2006, 2:22 PM
  2. “I found that merit counts more than Guanxi when selling high tech to big companies in China. Every time we thought we could win based on Guanxi, we lost.”

    Please; you tease us with a provocative statement like this, and then offer no examples to support it. I lived and worked in China for two years, heading up R&D for a major Telecom vendor. I continue to be involved with some activities in China as my wife is Chinese and I outsourced manufacturing and development to some Chinese companies in my last position.

    What you have suggested has not been my experience. Merit counts; especially if it relates to technologies that are ‘below the radar’, or when the company wishes to ‘acquire’ the technology (a cynical form of insourcing), but ‘interesting’ areas that attract attention, demand Guanxi and supporting government policy. Sounds like MicroSoft is benefiting from both.

    By the way, I would also be very interested in hearing of a relationship involving Huawei, that has survived the test of time, and which the western company would honestly claim was successful.

    Posted by Ross | June 2, 2006, 10:23 PM